Atlanta Homebuyers - Springtime Promises New Credit Scores

Springtime Promises New Credit Scores for All…

Fair Isaac Corporation, the company that makes the FICO credit score used by most lenders, has revamped their scoring systems in hopes of determining what borrower is more likely to default on their loan. Fair Isaac last adjusted their scoring systems earlier this decade, and is now accelerating the release of "FICO '08" under the demand from lenders to have a better way to determine and manage their risks. The new system will be available for lenders to test and / or use this spring.

The new system will look a little harder at the borrower's credit history. FICO '08 will be more forgiving on borrowers who have occasionally defaulted but have overall a good credit standing, and be harsher on the borrower who is a repeat-offender on the late payments. FICO '08 will also give a higher scoring to those who have several types of loans in good standing (i.e. mortgage payments, car payments, credit card payments) and lower scoring to those with a thin or new credit history, or have a high debt-to-income ratio. FICO '08 will still take into consideration all of the items previously considered, such as payment histories, amount of credit indebtedness, length of credit, any newly acquired credit, and types of credit.

Basically, better scores go to the low-risk borrower and lower scores go to the high-risk borrower, with seemingly more weight being put on how many times you have defaulted on a loan payment. Some people will find it a lot harder to obtain credit than in previous times. Conversely, the president of global scoring solutions for Fair Isaac says that most people will see their credit scores go up.

While I think the new FICO '08 is absolutely necessary and justified, I wish it hadn't taken the crash of the mortgage industry and the ever-increasing number of foreclosures nationwide to bring about these changes. Aren't all of the items listed ones that should have already been taken into account? When a lender pulls a borrower's credit, aren't these things the type of red flags they look for? It seems like common sense to me, but hey, I'm not the one making the scores here (or lending the loans).

Regardless, I am all about changes for the better for our industry -- and the future of our economy. Amongst others, FICO '08 is a big step towards the stabilization of our livelihood. It is so very important now more than ever to PRE-QUALIFY your buyers! If you have trouble getting your buyers to understand why they must get pre-approved, this is a seriously good excuse as to "why" your buyers must get pre-approved before you ever put them in your car. Take advantage of the "excuse", and together with FICO '08 we will all know better beforehand that our buyer is approved and ready to put in our car.  Spring is right around the corner! 

Contact Louise Scoggins for all your Atlanta Real Estate needs!

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